Markets and Elasticity Review

Another term for "equilibrium price" would be the _______

• Market clearing price

• Willingness to pay

• Equity price

• Minimum price

In the image shown, the shift in demand initially causes a ____ before the price ____, clearing it.

• Surplus, increases

• Shortage, increases

• Surplus, decreases

• Shortage, decreases

Considering the determinants of demand, which of the following could explain this shift in demand?

• Decrease in the price of flights

• Increase in number of available substitutes (eg. a train connection)

• An increase in average income of consumers

• A decrease in air travel during the winter months

Complete the sentence: the supply curve shifts outwards, initially causing a surplus. This puts downwards pressure on prices, incentivizing producers to produce ____, leading to a ____ in Qs. However, lower prices incentivize consumers to consume ____, ____ Qd. This continues until Qd=Qs, and market equilibrium is achieved.

• less, decrease, more, increase

• more, increase, less, decrease

• less, increase, more, decrease

• more, decrease, less, increase

Considering the determinants of supply, which of the following could explain this shift in supply?

• One of the major competitors in the tomato market goes bankrupt

• New technological developments make tomato harvesting more efficient

• Climate warming causes a disappointing tomato harvest

• The government bans the use of a dirty, but highly efficient, fertilizer

The sum of areas A and B is referred to as the _____ surplus.

In this diagram, how would an inwards shift of the supply curve affect the consumer surplus?

• Increase the consumer surplus

• Decrease the consumer surplus

• Unclear, not enough information available

Calculate PED when prices are raised from $2 to $2.10

• PED = 2

• PED = 0.5

• PED = 1

• PED = 1.5

Demand for this good is relatively ____. This means that an increase in price would lead to a proportionally ____ decrease in the quantity demanded.

• inelastic, smaller

• elastic, smaller

• inelastic, greater

• elastic, greater

Prices increase from A to D. What can you say about PED?

• PED = 0 (perfectly inelastic)

• 1 > PED > 0 (relatively inelastic)

• PED = 1 (unit elastic)

• PED > 1 (relatively elastic)